Wheat Market Outlook and Prices

The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.

 
 

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World Wheat Overview

 
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Summary of the World Wheat Situation as seen by USDA in June:                                   

  • 2019/20 global wheat production is expected to jump to a 10-year high of 781 mln mt.

  • Global wheat consumption is forecast at 763 mln mt, the highest since 2009, but still 18 mln mt smaller than production.

  • World wheat trade is forecast to jump by 5% year-over-year to 185 mln mt, 4% above the 5-year average of 176 mln mt.

    • Exports from the Ukraine are seen to increase by 17% over last year to 19.5 mln mt in 2019/20.

    • Exports from the EU are expected to rebound by 9% year-over-year to 26.5 mln mt.

    • 2019/20 U.S. exports are projected to fall slightly below 2018/19 levels to 24.5 mln mt.

    • Wheat exports (incl. durum) from Canada are forecast to fall by 500k mt from ‘18/19 to 24 mln mt in ‘19/20.

Global wheat production and trade

There is a lot of competition in the wheat markets as wheat is produced around the world. Below is a brief synopsis on last week’s market events in the major wheat origins.

  • Futures:  July '19 contract Chicago winter wheat closed at 526-0, down 0-4 cents in today’s trade, down 12-4 cents for the week.

  • July ‘19 contract Kansas hard red winter wheat closed down 8-0 cents at 452-4, down 23-6 cents for the week.

  • Minneapolis, July '19 contract hard red spring wheat closed at 536-0, down 2-2 cents in today’s trade, down 26-4 cents for the week, while Sept ’19 hard red spring wheat closed at 544-0, down 1-4 cents for the day, down 26-0 cents for the week.

  • Matif:  Matif wheat in Europe surprisingly ended flat, despite ongoing big premiums over the Black Sea.

  • Funds:  Index Funds did nothing during the week whilst large Specs sold a little corn, wheat and soybeans.

Canadian Wheat:

  • Canadian wheat exports of 329.3k mt during week 46 add to a total of 16.25 mln mt, up 13% (1.86 mln mt) from last year. The AAFC recently raised their ‘18/19 export forecast another 200k mt to 19 mln mt. We were already finding their 18.8 mln mt forecast high. With 6 weeks remaining in the MY, average weekly exports would need to be 458k mt to reach the AAFC’s total 19 mln mt.

 
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  • The SK crop report has spring cereal development 49% behind, but overall soil moisture has improved from 79% to 61% short/very short and this will continue to improve.

  • The Reuter’s poll on Canadian wheat area ahead of this week’s StatsCan report on seeded acreage is in line with StatsCan’s April est. of 25.7 mln all wheat acres. Durum area is expected to be slightly larger at 5.1 mln acres, vs StatsCan’s 5 mln.

  • According the last USDA report, lower beginning stocks in Canada are expected to be well offset by a large, 34.5 mln mt crop. Exports are estimated to be similar to last year at 24 mln mt. Meanwhile, the US HRS crop is also expected to be large at 16 mln mt vs 10.5 mln mt last year. This easily offsets the 1.2 mln mt lower beginning stocks. HRS exports are expected to be 1.1 mln mt higher at 7.1 mln mt.

 
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  • The only things supporting US wheat is corn and increased wheat feed demand. Otherwise, Canada and Australia have both received rain, improving their situations. US winter wheat yields have been pushing record levels, the Black Sea harvest is about to begin, and conditions in the EU are good overall.

  • Our first objective on spring wheat remains $7.25 per bushel.

  • Durum exports through the week were 90.3k mt for a season total of 3.9 mln mt, up 12% (419.3k mt) from last year. The AAFC raised durum export expectations another 200k mt to 4.4 mln mt. Thanks to the strong sales to Algeria, we should have no problem reaching this.

Durum Grain Handling Summary.jpg
  • The AAFC expects 2019/20 durum exports to be higher at 4.7 mln mt. The ICG is forecasting that global durum production this year will fall 1.5 mln mt to 36.6 mln mt for a 1.1 mln mt decrease in supply at 46.2 mln mt. Important for Canadian durum producers is the drought occurring in Morocco, where wheat and barley crops have finished under poor conditions. Weather has been very dry with no rain Feb-Jun. Vegetation indices have been low and peaked the earliest since the 2000/'01 crop year. The Moroccan AgMin is estimated their wheat crop will be 4.8 mln mt (3.5 mln common wheat + 1.3 mln mt durum) while the USDA's estimate is 400k mt lower at 4.4 mln mt. In May, the Gov't announced a 135% (+105%) import duty on common wheat (not durum) imports. Morocco is a strong customer of Canadian durum, importing 18% (613k mt) of all Canadian durum exports this YTD (Aug-Apr). We expect they will be strong customers in 2019/20.       

  • Durum acres are down in both Canada and the US and carry-out is lower than initially expected. We expect 2019/20 durum prices to fair better in 2019/20 than the year previous.

 
Moroccan Wheat Supply and Consumption.jpg
 

US wheat:

  • As the rally in the corn and winter wheat markets slowed, HRS futures continued to receive pressure on widespread rain last weekend and scattered rain through the week falling over the Western Prairies and the N Plains.  And despite a late seeding, spring wheat in the US is 95% emerged (+2% y/y), 2% headed (-6% y/y) and rated as 77% G/E, down 4% from last week (-1% y/y).

  • The HRW harvest has been slow because of rain, but rumour has it that yields are pushing record levels. Early samples show no quality issues: average HRW samples have been 10.9 pro #2HRW, similarly, SRW samples have an average protein of 9.7% and an overall grade of #2SRW.

  • There is still the issue of US feed demand and the fact that we think the USDA’s 50 mln bu increase in wheat feed demand is not enough. The USDA lowered corn feed demand 300 mln bu while only raising wheat feed demand 50 mln bu, implying that other feed grains are going to pick up the remaining 250 mln bu. We think this is unreasonable and that wheat feed demand will be higher than the current 140 mln bu estimate.

  • US wheat futures traded lower through the week following corn. Losses where mainly because of profit taking, a drier/warmer forecast, and US wheat being entirely uncompetitive in the export market. The problem is that when US futures fall, competing wheat markets tend to follow, maintaining the spread and stopping the US from gaining competitiveness. At the beginning of the week, Black Sea wheat was $50 cheaper than SRW and French wheat looked like it could work into Mexico. US wheat sales of 187k mt were below the 300k mt expected, but total sales of 233 mln bu remain ahead of last year’s 183 mln bu.

  • The poor competitiveness of US/N Am. wheat will continue, but the current wheat-corn spread has traders increasing ideas of wheat used for feed wheat. The debate continues about US corn planted acres, and we think the market has misinterpreted the last NASS report, but it is anyone’s guess if the USDA will reflect this in Friday’s acreage report. The bulk of Q1 demand will be covered by the Black Sea.

 

Australian wheat:

  • Our contacts in Australia tell us that E Australia has been receiving very good rains in June, improving the crop conditions significantly.

  • Still, after last week's 1.7 mln mt wheat production cut to 21.2 mln mt, ABARES decreased export to 11.7 mln mt (-2.5 mln mt) vs USDA’s 13.5 mln mt.

  • Old crop FOB values fell by $3-5/mt, and W Australian Fob wheat values fell to $234/mt, with $10/mt less for ASW wheat.

 

Argentine wheat:

  • The Buenos Aires Grain Exchange (BAGE) put wheat planting in the country at 50% complete, surprising given the heavy rains. 

  • There were no quotes for old crop Argentine wheat.

  • New crop Fob values for 12.5% protein wheat this week fell by $2/mt to $202.00/mt. The protein discount is -$4.00/mt per ½ percent protein.

 

EU wheat:

  • MARS, the European Union’s (EU) crop monitoring service, increased its soft (non-durum) wheat yield forecast from 6.05 mln mt/hectare (90.0 bushels/acre) last month to 6.10 mln mt/hectare (90.8 bushels/acre) this month due to beneficial rains across most wheat-producing regions in the EU. The new yield forecast for 2019/20 is 9% higher than the average yield in 2018/19 and 3% higher than the five-year average. 

  • Had there been any offers of French wheat to Egypt (GASC), it would likely have been $15/mt higher than Black Sea offers; Russian wheat is increasingly taking W African demand away from France!

  • Black Sea 11.5% protein wheat ended the week $45/mt cheaper than SRW and $18/mt below French wheat, while Russian 12.5% protein wheat is $10/mt below German and $20/mt below US HRW wheat.

  • Crop concerns remain limited, and final EU 18/19 exports should be close to the European Commission's (EC) 22 mln mt.

 

Black Sea wheat:

  • On June 20, Russian agriculture consultancies, IKAR and SovEcon, reduced their forecasts for 2019/20 wheat production and exports on hot, dry growing conditions. Both expect production to reach 80.0 mln mt compared to previous estimates of 80.2 mln mt, still 11% higher than the 72.0 mln mt produced in 2018/19. IKAR expects Russian exports to total 36.5 mln mt, down from its previous estimate of 37.0 mln mt. SovEcon reduced its export forecast from 38.2 mln mt to 37.6 mln mt.

  • Early wheat harvest results show proteins over 13% with good test weights and gluten.

  • The heat in Russia is expected to dissipate next week as it exits the Black Sea and moves westwards into the EU where there will be some extreme temperatures this week.

  • The Russian 12.5% protein wheat bid-offer is at $196/mt, virtually unchanged from last week. 11.5% protein wheat is $8/mt cheaper at $188/mt.

 

Significant purchases/ trades:   

Global cash markets were quiet again last week.

  • Egypt (GASC) bought 290k mt Russian/Romanian wheat at $210-$211.20/mt for July 22-31.

  • Korea bought 190k mt of feed wheat for Aug-Oct at $215-218/mt.

  • US wheat inspections were 375k mt (season total 29 mln bushels and equal to last year), export sales were 188k mt (season total 233 mln bushels against last year's 183 mln bushels).


Wheat Market Outlook

Significant Events

  • Black Sea 11.5% protein wheat ended the week $45/mt cheaper than SRW and $18/mt below French wheat, while Russian 12.5% protein wheat is $10/mt below German and $20/mt below US HRW wheat. - The bulk of Q1 demand will be covered by Black Sea wheat.

  • The heat in Russia is expected to dissipate next week as it exits the Black Sea and moves westwards into the EU where there will be some extreme temperatures this week.

  • The US HRW harvest has been slow because of rain, but rumour has it that yields are pushing record levels. Early samples show no quality issues: average HRW samples have been 10.9 pro #2HRW, similarly, SRW samples have an average protein of 9.7% and an overall grade of #2SRW.

  • The SK crop report has spring cereal development 49% behind, but overall soil moisture has improved from 79% to 61% short/very short and this will continue to improve.

  • The only things supporting US wheat is corn and increased wheat feed demand. Otherwise, Canada and Australia have both received rain, improving their situations. US winter wheat yields have been pushing record levels, the Black Sea harvest is about to begin, and conditions in the EU are good overall.

Outlook

Overall, the wheat market needs some demand and the big picture has not changed: There is plenty of wheat worldwide and a Northern Hemisphere harvest that is about to start in earnest. At today's prices, USA exports will not make the USDA's projection and will be limited strictly to captive demand. But at current spreads against corn, wheat feeding will increase both in the USA and worldwide.

We see no reason to sell new crop at present. Futures may go a little lower in the next few days, however, further forward prices will rally and the Canadian dollar will weaken. Our first objective on spring wheat remains $7.25 per bushel.


Primary Elevator Bids

 
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Primary elevator bids data source: PDQ


Grade Spreads in Canadian Dollars

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Relevant FOB Prices and Calculated Basis

 
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